It’s a terrible lose lose situation. 1st republic bank is now on the ropes. If more depositors continue to run the banks we could see a nasty contagion and consolidation of the banking sector (not good).
SVB might not have practiced good risk management by purchasing long dated treasuries during the 0% money printing bonanza during the pandemic (and not hedging). And after the federal reserve started increasing interest rates because inflation was not “transitory” those bonds were at risk if a large amount of depositors wanted to redeem their deposits (they would have to sell those same treasuries at a loss because who would wanna buy a treasury yielding 1% when you can purchase 1 yielding 5%?).
And we might see more of this in the coming weeks as I suspect more banks don’t practice proper risk management (remember 2008?).
I suspect we’ll see more smaller bank failures, and the bigger banks will gobble up the good assets off these insolvent bank for pennies on the dollar and the taxpayer will foot the bill of the ‘toxic’ assets (remember 2008?).
It’s a shame that venture capitalists, who invest in emerging technology and small business owners are caught up in this cluster (97% of deposits are FDIC UNINSURED >$100,000,000,000.00).
SVB is the 15 or so largest bank in the US so this isn’t small potatoes like silvergate bank which went belly up early this week (2 bank failures in a week in significant imo). I don’t think more regulations is the answer because they’ve been shown to be incompetent in sniffing out issues. Personally I think near 0% fractional reserve banking and repealing the glass stegal act should be revisited.
And to the naysayers that think you can’t be affected, after the great financial crises, bank bail-ins, which we’re previously illegal, are now allowed in the US (especially for systemically important banks). So I think every depositor at an American bank should pay attention to what’s going on.